EXHIBIT 10.4


                    THE FIRST KEYSTONE CORPORATION
                       1998 STOCK INCENTIVE PLAN

     On February 10, 1998, the Board of Directors adopted the First
Keystone 1998 Stock Incentive Plan (the "Plan") and reserved 100,000
shares of Common Stock for issuance under the Plan. The purpose of the
Plan is to advance the development, growth and financial condition of
the Corporation and its subsidiaries by providing incentives through
participation in the appreciation of capital stock of the Corporation
in order to secure, retain and motivate personnel responsible for the
operation and management of the Corporation and its subsidiaries. The
Plan is designed to attract and retain individuals of outstanding
ability as employees of the Corporation and its subsidiaries, to
encourage employees to acquire a proprietary interest in the
Corporation, to continue their employment with the Corporation and its
subsidiaries and to render superior performance during such
employment.

     The Plan became effective as of the date it was adopted by the
Corporation's Board of Directors, subject to the approval of the
shareholders of the Corporation.  Any and all options and rights
awarded under the Plan before its approval by the shareholders are
conditioned upon and may not be exercised before receipt of
shareholder approval.  If the shareholders approve the Plan, the Plan
will continue in effect until all awards under the Plan either have
lapsed, been exercised, satisfied or canceled according to the terms
under the Plan. The shares of stock that may be issued under the Plan
shall not exceed, in the aggregate, 100,000 shares of Common Stock as
may be adjusted from time to time due to stock splits, payments of
stock dividends, or other changes in the structure of the
Corporation's capital.

     The Plan will be administered by a committee consisting of two or
more directors (the "Committee"). Persons eligible to receive awards
under the Plan are those key officers and other management employees
of the Corporation and its subsidiaries as determined by the
Committee.

Awards

     Awards made under the Plan may be in the form of: (i) options to
purchase stock intended to qualify as incentive stock options under
Sections 421 and 422 of the Code (referred to herein as "Qualified
Options") and (ii) options which do not so qualify (referred to herein
as "Non-Qualified Options").

     Generally, awards may be exercised in whole or in part. Funds
received by the Corporation from the exercise of any award shall be
used for its general corporate purposes. The Committee may permit an
acceleration of previously established exercise terms of any award as,
when, under such facts and circumstances, and subject to such other or
further requirements and conditions as the Committee may deem
necessary or appropriate, including, but not limited to upon a change
of control of the Corporation (as defined in the Plan).


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Qualified Options

     Qualified Options may not be awarded under the Plan more than ten
(10) years after the earlier of the date the Plan is adopted by the
Board of Directors or the date on which the Plan is approved by the
shareholders are only exercisable upon the expiration of six months
after the date of the award and may not continue beyond the expiration
often (10) years beyond the date of the award. The purchase price of
the stock subject to any Qualified Option, as determined by the
Committee, may not be less than the stock's fair market value (as
defined in the Plan) at the time the option is awarded or less than
its par value. If the recipient of a Qualified Option ceases to be
employed by the Corporation, or subsidiary thereof, the Committee may
permit the recipient to exercise such option during its remaining term
for a period of not more than three (3) months. This period may be
extended to a 12 month period if such employment cessation was due to
the recipient's disability, as defined in the Plan. If the recipient
ceases to be employed by the Corporation, or subsidiary thereof, due
to his or her death, the committee may permit the recipient's
qualified personal representatives, or any persons who acquire the
options pursuant to his or her will or the laws of descent and
distribution, to exercise such option during its remaining term for a
period not to exceed 12 months after the recipient's death to the
extent that the option was then and remains exercisable. Qualified
Options are not transferrable except by will or by the laws of descent
and distribution.

Non-Qualified Options

     Similar to Qualified Options, Non-Qualified Options are only
exercisable upon the expiration of six (6) months after the date of
the award and shall not continue beyond the expiration of ten (10)
years beyond the date of the award. If a recipient of a Non-Qualified
Option ceases to be eligible under the Plan before the option lapses
or before it is fully exercised, the Committee may permit the
recipient to exercise the option during its remaining term, to the
extent that the option was then and remains exercisable, for such time
period and under such terms and conditions as may be prescribed by the
Committee. The purchase price of a share of stock pursuant to a
        Non-Qualified Option, as determined by the Committee, shall not be less
than the stock's par value (as defined in the Plan) at the time such
option is awarded. Except as otherwise provided by the Committee,
        Non-Qualified Stock Options are not transferable except as designated by
the participant by will and the laws of descent and distribution.

Federal Tax Consequences

     An employee who receives Qualified Options will not recognize
taxable income on the grant or the exercise of the option. If the
stock acquired by the exercise of a Qualified Option is held until the
later of: (i) two (2) years from the date of the grant; and (ii) one
(1) year from the date of exercise, any gain (or loss) recognized on
the sale or exchange of the stock will he treated as long-term capital
gain (or loss), and the Corporation will not be entitled to any income
tax deduction. If stock acquired on exercise of a Qualified Option is
sold or exchanged before the expiration of the required holding
period, the employee will recognize ordinary income in the year of
disposition in an amount equal to the difference between the option
price and the lesser of the fair market value of the


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stock on the date of exercise, or the setting price. In the event of a
disqualifying disposition, the Corporation will be entitled to an
income tax deduction in the year of such disposition in an amount
equal to the amount of ordinary income recognized by the employee.

     An employee who receives a Non-Qualified Option will not
recognize taxable income on the grant of the option, however, upon
exercise, he or she will recognize ordinary income in an amount equal
to the excess of the fair market value of the stock on the date that
the option is exercised over the purchase price paid for the stock.
The Corporation will be entitled to an income tax deduction in the
year of exercise in an amount equal the amount of income recognized by
the employee.

     The foregoing tax discussion is intended as a summary only, and
the federal income tax consequences to any person who participates in
the Plan and to the Corporation may vary from those described above
depending upon individual actions and circumstances.

     As of February 10, 1998, four (4) executive officers were
eligible to participate in the Plan. The size and type of awards are
generally to be determined by the Committee in its discretion. Such
future grants are not presently determinable, and it is not possible
to predict the benefits or amounts that will be received by or
allocated to particular individuals or groups for 1998.

     The following table sets forth the benefits that would have been
granted under the Plan had it been in effect during 1997. The table
assumes that the grants would have been made on December 31, 1997.  On
that date, the approximate fair market value of the Corporation's
Common Stock was $55,985,290.  Currently, the Corporation has
definitive plans to issue any benefits under the Plan.

<TABLE>
<CAPTION>

                                               New Plan Benefits
Name and Position                    Dollar Value ($)                        Number of Units

                                  <c>                    <c>
J. Gerald Bazewicz, CEO              114,500                2,000
Executive Group                      171,750                3,000
Non-Executive Director
   Group                             0                      0
Non-Executive Officer                114,500                2,000
Employee Group                       11,450                 200

</TABLE>

     The foregoing discussion of the Plan consists of only a summary
and is qualified in its entirety by reference to the full text of the
Plan attached as Exhibit "A" to this Proxy Statement. Exhibit "A" is
deemed to be an integral part of this Proxy Statement and incorporated
in its entirety by reference.

     The Board of Directors recommends a vote FOR the following
resolution which will be presented at the Annual Meeting:


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     RESOLVED, that the First Keystone Corporation 1998 Stock
Incentive Plan, the text of which is set forth in full and in its
entirety in the Proxy Statement for the 1998 Annual Meeting of
Shareholders as Exhibit "A" is hereby approved, adopted, ratified and
confirmed by the shareholders of the Corporation.

     The approval and adoption of the Plan requires the affirmative
vote of a majority of all votes cast by all shareholders entitled to
vote thereon. Proxies solicited by the Board of Directors will be
voted for the foregoing resolution unless shareholders specify to the
contrary on their proxies.